1. Cashflows, Revenues & Profit: Understanding the difference
Binod Shankar, CFA

2. Aldar Properties: Income Statement

3. Aldar Properties: Cash Flow Statement

4. Accrual vs Cash Basis Cash Basis Accrual Basis
Transactions are accounted when cash is paid or received
No subjectivity
Easy to verify and information is more reliable
But does not show correct performance or financial position
Revenue is accounted when earned, not when received
Expense is accounted when incurred, not when paid
More timely and relevant information for decision making
Many estimates & assumptions

5. Financial Statements Income Statement Balance Sheet
Cash Flow Statement

6. Income Statement (Performance)
Revenue
Other income
Gains
Expenses
Operating expenses
Other expenses
Losses

7. Income Statement (Performance)
Financial results during a period – profit or loss
Aka Profit and Loss statement
Net Income = Revenues - Expenses
Net income is the bottom line

8. Cash Flow Statement (Liquidity)
Operating CF
Cash received from customers, cash paid to suppliers, salaries paid, rent paid 
Investing CF
Payments for purchase of building, machinery, vehicles etc
Financing CF
Loans borrowed and repaid, share capital received

9. Cash v/s Profit
Cash is not profit, and profit is not cash. You need both to sustain and grow a business
Its dangerous to confuse cash with profit
Cash flow, not profit, is a truer reflection of the financial health of your business. 
You can be cash rich and profit poor
You can be cash poor and profit rich (Aldar)
Cash is like air; profit is like food. You need cash all the time, but you can survive—for a while—without profit.

10. Inventory Optimise inventory holding period
Buy and stock only fast moving items (use DOH)
Using inventory re-ordering models. A number of statistically based models exist for planning and control of stock.
Accelerate supply-chain process; reduce work in progress
Buy from a supplier who is located nearby: more distance = more inventory!
Warning: Too little inventory can lead to “Stock Outs” and loss of sales. Too much inventory means liquidity problems, high insurance & storage costs, bigger risk of stock obsolescence and higher write offs.

11. Receivables Optimise Accounts Receivable Period
Reduce sales made on credit. Increase sales made for cash
Reduce the credit period given to clients
Reduce risk of bad debts; check before giving credit
Monitor the ageing schedule
On longer term projects, insist on progress payments
Offer discounts to clients for faster payments
Warning: Too little receivables means tight credit period and may lead to loss of sales. Too high receivables means liquidity problems, bigger risk of bad debts and write off of uncollectable amounts.

12. Payables Optimise payables period
Reduce dealings with suppliers who ask for advances or cash payments
Deal more with suppliers who will give you adequate credit
Never pay too early
Warning: Too little payables means low credit given by suppliers & liquidity problems. Too high payables means delay in payment to suppliers which could result in suppliers refusing to sell to you or sell at higher prices.

13. Optimize!
Inventory
Receivables
Payables
Expenses
Cash reserves $ $ $

14. Did you know?
About two-thirds of business survive 2 years in business, half of all businesses will survive 5 years, and one-third will survive 10 years
According to a U.S. Bank study, 82% of businesses that fail do so because of cash flow problems

15. End Piece

16. Managing Director, Kaplan Genesis
Binod Shankar, CFA
Managing Director, Kaplan Genesis